5 Pros and Cons: When Does a German Holding UG Make Sense?

A wealth-managing investment holding as a German UG or GmbH (also vvUG or vvGmbH) is now part of the standard repertoire in the startup scene. But an intermediate holding can also make sense for normal foundations. In this article, you will learn when this is the case and what you need to look out for.

What is an Investment Holding UG (Financial Holding)?

An investment holding UG is a German Entrepreneurial Company (limited liability) that acts as a pure investment company. It exclusively holds shares in one or more companies (financial holding) and limits itself to the management of these investments – without being operatively active itself.

Pure investment holdings that merely hold shares in other companies are not entrepreneurs within the meaning of the German Value Added Tax Act (UStG) (*Bunjes/Korn, 24th ed. 2025, UStG Section 2 para. 129). On the one hand, this means that they do not have to pay VAT and do not have to submit VAT advance notifications/VAT returns. On the other hand, investment holdings are also not entitled to input tax deduction.

Since pure investment holdings do not have to submit VAT advance notifications, year-round accounting is generally not necessary. Programs like Lexoffice or other accounting tools can therefore usually be dispensed with. It is sufficient to hand over all receipts and bank statements to the tax advisor for the preparation of the annual financial statements after the end of a year.

The Most Important Advantages of an Investment Holding UG

1. Tax Advantage in the Sale of an Investment: If the holding sells your share in an operative company, it can benefit from the so-called affiliation privilege (Schachtelprivileg), which is regulated in Section 8b para. 2 of the German Corporate Income Tax Act (KStG). The level of the investment held or sold is irrelevant here (unlike in the case of profit distribution, more on this below). According to this, capital gains are 95% tax-free as long as they remain in the holding UG. Thus, only 5% at the holding level is burdened with corporate income tax and trade tax (approx. 30% in total). This corresponds to an effective tax burden of 1.5%. The rest of the capital gains can be reinvested in the holding in a tax-optimized manner.
2. Tax Advantage for Profit Distributions: You can also benefit from the affiliation privilege with your holding for profit distributions or dividends. However, the 95% tax exemption only applies here if your holding holds at least 10% of the distributing company at the beginning of the year in which the profit distribution falls.
3. Limitation of Liability: As with the German GmbH, the investment holding UG is only liable with its corporate assets. This means that your assets held in your holding are generally protected from an insolvency of the operative investment companies.
4. Low Formation Costs: Since you have a 100% stake in your personal holding, you can use the low-cost standard protocol (Musterprotokoll) for the formation at the notary without any problems. This ensures a fast and simple formation of the investment holding UG.

This Disadvantage You Should Know

The main disadvantage of the investment holding is the ongoing costs caused primarily by the annual financial statements and tax returns. Conventional tax advisors usually charge between 1,000 and 2,000 euros per year for this.

However, through the Resolvio portal, the Solving Tax firm is for the first time offering an annual financial statement service that costs only €319 net per year due to the use of artificial intelligence in preparation.

By using a low-cost annual financial statement service, you can greatly reduce ongoing costs in your holding even in the first few years when no income from investment sales or profit distributions is pending, so that the cost-benefit ratio becomes particularly attractive.

When is an Investment Holding UG the Right Choice?

For founders and companies that want to achieve a high increase in value with their operative company and expect the possibility of an exit (sale of the company to investors), the interposition of a personal investment holding is generally recommended in order to use the enormous tax advantages of the affiliation privilege.

The investment holding UG is less suitable for founders who want to establish a rather small company and do not expect a significant increase in the company's value. In such cases, profit distributions are usually non-existent or low because the earnings are for the most part "used up" by managing director salaries. The affiliation privilege would bring no or only a minor benefit here.

Conclusion

A wealth-managing investment holding UG can be a recommended option when founding a company due to its massive tax advantages.

By using the low-cost annual financial statement service from Solving Tax (via the Resolvio platform), the cost-benefit ratio can be particularly favorable.